On September 8th, 2016, it was revealed that Wells Fargo had created over two million fraudulent accounts on behalf of their customers. These fraudulent bank accounts and credit cards were produced by employees under pressure from incredibly demanding sales goals. As a result of these tough to achieve goals, along with the severe punishments associated with missing targets, many of these employees resorted to supplement their sales figures by established fraudulent accounts without the client’s knowledge. In the aftermath of this revelation, Wells Fargo has experienced a minor shakeup in its leadership, fired over 5,000 retail banking employees and had a $185 Million fine imposed (1).
The fallout of the scandal being publicized has yet to be fully realized by Wells Fargo and the industry as a whole. However, the immediate aftermath has left Wells Fargo banned from conducting business with numerous municipalities for a year, a significant slowdown of checking account and credit card openings in September, compared to a year ago and the resignation of the CEO, John Stumpf (2). These hits are coupled with the drastic drop in consumer trust and the likely lengthy intense investigation the bank is currently facing. While the new CEO, Timothy Sloan is working tirelessly to remedy the corporate strategy, the impending investigation and potential of further revelations will further impede the bank’s ability to reclaim their former market dominance.
In an effort to rectify the situation, Timothy Sloan has imposed a strict shift in corporate strategy from aggressively pushing sales to increasing customer service and satisfaction. They are making every attempt to fix the damage caused to the affected customers and regain their trust. However, as is being speculated, Wells Fargo did not in fact benefit from the actions involved in this scandal and disgruntled employees may have been trying to exact revenge on an employer they felt wronged them (3). Despite this possibility, the public does not appear to be considering it and management’s top priority has become the consumer sentiment of the bank. Their clear vision is that the present losses will be accepted if they may stem the growing tide against the bank. The overall goal of sales-driven to customer driven is reframed as a shift from short-term focus to a much longer-term focus.
While the scandal has opened up enormous opportunities for the remaining Bulge Bracket banks, an unlikely player is emerging the victor. With the overall sentiment of banks and wall street continue to move negatively, non-profit institutions such as credit unions, are experiencing a windfall of growth and have grabbed the opportunity presented to them (4). While these smaller institutions only cover a portion of the services offered by the larger banks, their impact and future potential is becoming larger. It will likely lead to additional shifts down the line by the larger banks towards reduced fees and a more significant focus on customer experience and relationships.
With credit unions posing a growing industry-shift down the line, the controversy engulfing Wells Fargo has created an opportunity for their rivals such as J.P. Morgan Chase & Co. and Citibank. Additionally, these rivals are learning from the scandal as J.P. Morgan has found an opening to further highlights their commitment to their customers by proactively probing their sales practices (5). As an added hit to Wells Fargo, the major banks are emphasizing the contrast behind corporate strategy and customer focus. This strategy will likely have more pronounced and clear results in the coming years, but as Citibank and J.P. Morgan just reported significantly higher than projected earnings largely due from other events, including Brexit talks, they are in an even stronger position to gain the most from Wells Fargo’s scandal (6).
(1) Blake, Paul. "Timeline of the Wells Fargo Accounts Scandal." ABC News. ABC News Network, 3 Nov. 2016. Web. 06 Nov. 2016.
(2) Corkery, Michael. "Wells Fargo Says Customers Shied Away After Scandal." The New York Times. The New York Times, 15 Oct. 2016. Web. 06 Nov. 2016.
(3) Henry, David, and Dan Freed. "Sales Scandal Costs Wells Fargo; JPMorgan and Citi Please Wall Street." Reuters. Thomson Reuters, 14 Oct. 2016. Web. 06 Nov. 2016.
(4) Son, Hugh, and Jordyn Holman. "JPMorgan Conducts 'Deep Dive' Review After Wells Fargo Lapse." Bloomberg.com. Bloomberg, 14 Oct. 2016. Web. 06 Nov. 2016.
(5) Walters, Natalie. "Wells Fargo (WFC) Did Not Benefit From Accounts Scandal, Says WSJ's Freeman." TheStreet. N.p., 12 Oct. 2016. Web. 06 Nov. 2016.
(6) Woolley, Suzanne. "Here's Who Profits From the Wells Fargo Scandal." Bloomberg.com. Bloomberg, 14 Sept. 2016. Web. 06 Nov. 2016.
Image: © Alexeynovikov | Dreamstime.com - Street Signage Board With Wells Fargo Logo In The Evening. Blurred Business District Skyscrapers Background. Editorial Photo
For the past several decades there has been a relatively consistent tone in the political and business world regarding Cuba. However, due to recent actions by the Obama administration, the economic potential for the once heavily secluded country has risen into the spotlight. Of the possible impacts, one of the most important is the effect it has on the Cuban tourism industry. As the most viable option for sustainable access to hard currency, the tourism industry in Cuba has become a major focus for its potential role in the country’s economic advancement. With a decade of focus and determination and about a quarter of all investments in Cuba, the tourism industry has become the strongest sector of the Cuban economy. (3).
With the pervasive governmental overreach present throughout the Cuban economy, access to hard currency offers the Cuban people an opportunity to diminish their reliance on the government. As a communist country, the government has a history of oppression and dominance that can be seen through their dismal 29.8 rating on the Freedom Index by the Heritage Foundation. (5). The decades of oppression were a primary driver behind the decision to ease restrictions, since nothing else seemed to be working.
This lack of progression and subsequent regulatory easing has been considered by some as a reward for terrible behavior. The subsequent backlash and comments by some politicians have put the life expectancy of this new direction into question, especially as new concerns have risen due to lack of clarity regarding President-Elect Trump’s stance on the matter. However, despite some of Trump’s inflammatory comments regarding backtracking on regulatory easing, as recently as six months ago he was looking at potential hotel acquisitions in Cuba. (1). This fuels the likely possibility that the regulatory easing may in fact be reorganized and accelerated.
With the death of Fidel Castro on November 25th of 2016, Raul Castro’s next actions are being analyzed for any shifts. When Raul assumed power in 2008, he took a significantly different approach than his brother, Fidel. Raul instituted a relatively more progressive agenda including releasing political prisoners, easing travel restrictions and reinvigorating diplomatic ties with the United States. Given the dramatic shift between Rual’s and Fidel’s approach, Fidel’s death is likely to invoke more of an emotional effect than a tangible diplomatic or progressive effect. (2).
How the Trump administration will act towards Cuba following his inauguration will be pivotal to Cuba’s economic outlook. However, certain aspects of their economy are less contingent on the U.S. and can be analyzed in a more independent light. Their exports of medical services which comprises nearly 40% of their total exports is expecting a drop in demand by their primary buyers. Along with the impact of commodity prices on the Cuban economy, the outlook as a whole is unideal at best. (4). That being said, the economic focus on all Cubans’ minds and the potential windfall from a revitalized tourism sector will be a boom to the sector. The country’s seclusion and the level of interest by American’s to visit has helped spur the 17.4% growth in visitors relative to 2014. (6). With that level of growth not expected to slow down any time soon, the Cuban tourism sector has clarified its position as the Cuban people’s best bet.
(1) Baker, Stephanie, and Sharon Smyth. "Trump Considered Buying Hotels in Cuba, Iberostar Chief Says." Bloomberg.com. Bloomberg, 2 Dec. 2016. Web. 03 Dec. 2016.
(2) Carroll, Rory. "Raúl Castro: Where Will Fidel's Brother and Successor Take Cuba Next?" The Guardian. Guardian News and Media, 28 Nov. 2016. Web. 03 Dec. 2016.
(3) Castillo, Ornaldo Gutiérrez, and Nélida Gancedo Gaspar. "Tourism Development for the Cuban Economy (English Version)." ReVista. Harvard University, n.d. Web. 03 Dec. 2016.
(4) Cowen, Tyler. "Cuba's Glum Economic Forecast." Bloomberg.com. Bloomberg, 26 Nov. 2016. Web. 03 Dec. 2016.
(5) "Cuba." Cuba Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. The Heritage Foundation, 2016. Web. 03 Dec. 2016.
(6) Hamre, Jaime. "Surge of Americans Tests Limits of Cuba's Tourism Industry." Reuters. Thomson Reuters, 26 Jan. 2016. Web. 03 Dec. 2016.
Image: © Kmiragaya | Dreamstime.com - Touristic sightseeing bus in Old Havana